It’s crucial to watch growth stocks right now

Kevin Marder is a guest columnist and a co-founder of MarketWatch. He is
principal of Marder Investment Advisors Corp. and a contributor to
The Gilmo
Report. Previously, he served as chief market strategist for Ladenburg Thalmann
Co. and developed institutional fixed-income risk management software for
Capital Management Sciences.

Participants responded to three days of selling in the Nasdaq Composite and S&P 500 by buying shares Wednesday. The behavior was constructive as the Naz found support at a confluence of three factors: last week's low, the 50-day moving-average line, and the round number of 4,500.

In the process, Wednesday's reversal allowed the Nasdaq to establish a three-week trading range.

New York Stock Exchange volume rose to 16% above average, something that this column has longed for for some time. But Nasdaq turnover was just slightly above normal, despite showing the higher percentage gain than the S&P. Meanwhile, the small-capitalization sector lagged for the seventh time in nine sessions. As noted here Tuesday, based on precedent, it is unlikely that the small-caps will lead the market during the rest of this bull.

Among the names, Gilead Sciences GILD, +1.24%
is the largest biotechnology concern by market capitalization. The company focuses on the areas of viral, fungal, respiratory and cardiovascular diseases. The stock is ranked in the 97th percentile for relative price strength vs. all other stocks in the last year. Its industry group is ranked in the 98th percentile. Most analysts eye earnings growth of 294% in 2014 followed by 18% in 2015.

Technically, after breaking out of a multi-month base in early July and moving up 29% in nine weeks, the stock has spent the last three weeks forming a consolidation pattern. While there does not appear to be an attractive entrance at present, another week or so of backing and filling may provide enough meat to its pattern to allow for a breakout entrance.

The pullback buyer might also consider a retracement back to the last prominent swing low of Sept. 16 at 99.23. This would coincide with the 50-day moving-average line and also the 100 "psych level."

Pacira Pharmaceuticals PCRX, +1.20%
is a developer of specialty drugs with a unique type of delivery technology for hospitals. Most analysts who follow the stock on Wall Street see 2013's per-share loss of $1.63 improving to a profit of 23 cents this year and $2.53 next year. Quarterly revenue has gone from 23 (million) to 34 to 37 to 47, respectively. Mutual-fund sponsors have gone from 246 to 279 to 333 in the last two quarters, respectively.

Pacira can be a choppy actor. Its average-daily-dollar volume is about $40 million which means it has good liquidity, but certainly not up in the realm of Facebook FB, +0.35%
or Tesla Motors TSLA, -0.27%
Some of this chop shows up in the current four-week consolidation pattern.

An aggressive speculator might consider taking PCRX above the Aug. 29 base high of 109.94. As always, a reasonable stop-loss should be deployed so as to mitigate the risk of being incorrect. It is also a good idea to enter with a half-sized position initially, followed by an add-on position if the stock performs as expected.

Acadia Healthcare ACHC, -0.75%
operates a chain of treatment facilities for behavioral health disorders. Most analysts from Wall Street who track ACHC forecast 38% earnings growth this year and 36% next year. The number of mutual funds that own the shares totaled 308 three quarters ago, 330 two quarters ago, 348 one quarter ago, and 377 in the most recent quarter.

The stock has been an outstanding performer in the bull market, moving from 5 in 2011 to its current price of about 50. At present, ACHC forms an eight-month base. In this particular application, a cheater entrance would not represent attractive entrance. This is because the stock is not moving deliberately and persistently up the right side of its base. Rather, a clear breakout of the January high of 53.87 on strong volume could be better contemplated by a speculator in momentum names.

It is crucial to watch the growth stock leadership closely each day. This will be your biggest clue as to the sentiment, and hence, direction, of this market. If more growth titles show technical breakdowns on the right sides of their bases, this will be valuable information. If the most important of the liquid glamours, e.g. FB, breaks down, this will be even more important.

Most important of all, price is truth. It is 100% objective and available for all to see.

The views contained herein represent those of Marder Investment Advisors Corp. ("MIAC"). At the time of this writing, of the stocks mentioned in this report, Kevin Marder and/or MIAC held no positions, though positions are subject to change at any time and without notice. This information, which may have been previously disseminated, is issued solely for informational and educational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. The information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. Past performance of any security or strategy is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to MIAC, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position.

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